It ain't, really, it ain't

A commonplace of our times is that data is the new oil. An unfortunate thing for people to think for it’s entirely bass ackwards – data ain’t the new oil at all, it’s entirely the opposite in economic terms. And, of course, we’re being asked to think of this data as being that new oil in exactly those economic terms that they’re getting wrong.

Think through this for just a moment. With oil the people who own the raw stuff in the ground get all the money. What is it that we’re complaining about over data? That we, the people who own the damn stuff in the raw, don’t get all the money. Data and oil therefore aren’t even remotely similar in economic terms then, are they?

James Pethokoukis is interesting on the subject but doesn’t to my mind, go far enough:

Data is just like oil, other than these few minor differences

And he’s right and fine in those differences. But we can and should go further.

Oil is a resource. Sure, OK, so are lots of things. But we do talk about natural resources in a slightly different manner in economics. Including pointing to resource rents. This is money, value, that accrues to someone just because this resource exists. Oil exists, no one manufactures it. The same might be true of spectrum, raw land, a number of things. Whoever owns it gains value simply from being able to appropriate that value that is already extant.

This is entirely – and conceptually – different from value added by activity. Drilling for oil, pumping it up, refining, transporting etc, these all add value. So does building – usually that is – on a piece of land, or other people building a city around your piece, someone inventing radio adds value to spectrum and on and on.

And we do distinguish, a lot, in economics between these two. The addition of value to a resource is something that people should profit from. For they’ve undertaken effort to add value of course. Actually, that’s not quite right, it’s so that people who are thinking about undertaking effort to add value elsewhere see that they’ll get to keep some of the value created. But that is distinguished from the natural and bare value of those resources. Resource rents should be taxed until the pips squeak. We’ve got to gain our tax revenue somewhere, if people didn’t create the value then we cannot diminish the amount of value being created by taxing away that not-created value.

We’re great with frackers making money from fracking, the tax system should get the value of the oil itself, in its natural form, in the ground and unfracked.

We can also view this the other way around. Who does gain that value of that raw oil in the ground? Whoever controls the ground above either in a legal or military sense. And in the larger system, the entire oil extraction industry, the value flows to those who own the resource itself. Sure, Shell, BP, Exxon, they make money, but it’s a return upon the capital they’re employing to do the work, not the resource rent. Saudi Aramco makes much more than they do precisely because it also collects the resource rents itself.

So, in order for data to be like oil it would need to be true that the owners of the original, unprocessed, resource end up with all the money. That’s exactly what does happen with resource rents and natural resources. We, us out here, are the people who generate and own that data in its raw form. The entire complaint in the field is that we ain’t the people getting the money. Rather, it’s the Googles and Facebooks doing the processing who do get all the oodle.

It’s as if the oil companies are gaining all the resource rents and governments and the tax system none of them. Which isn’t, as we can observe, how the oil business works. Ownership of the data in its raw form isn’t creating any resource rent at all in fact. Which is why data isn’t the new oil. In fact, in this economic sense, data is entirely unlike oil in the slightest.

If data were oil then people would be lining up to buy it from us. Our complaint is that no one will pay us for our data. Therefore data isn’t the new oil, is it?

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  1. The Pethokoukis article is unenlightening, as it quotes an Economist article about superficial similarities such as that there are “pipes” in both data centers and refineries, and winds up merely pointing to three other articles to make his point that the two resources are more different than similar.

    Oil is not valuable as is. The owner of land containing oil has something of value, and gets money if he works with people who can pump it out and refine it. Small landowners who never get a well in their backyard get continual payments from big oil companies who, in the case of a profitable find nearby, want dibs on it. The datum that I like fizzy lager and can edit for hire between 3 and 5 this afternoon, is also of value provided I work with refiners. I get value — notably, global connection to like-minded English-speakers — in exchange for my data. The ability to search the entire Internet for relevant papers is of huge value, if we had not always gotten it for nothing except the chance for Google to snoop on us.

    Traditional US tax law had the same basis as the value-added tax: The government does not get the complete value of a resource in its raw state, but gets a percentage of earnings streams as value is added to the resource, with huge work to try to figure out what is properly deducted from earnings, such as the costs of producing the earnings. Taxation of wealth or gross receipts are resisted, as they would impose a tax even on people who took a loss. (In the Obama era, all of the above is trashed in favor of envy: How can a large company pay no tax?!)

    It is pointless to conclude that data are simply “like” or “different from” oil. However, economics is economics, and applies to both, if all parties are free to participate or to abstain.

  2. Dangerous article you’ve written there. You’ll give government the idea they should recover the value of all our data, on our behalf, by taxing it. It’s a wonder the money grabbing bar stewards haven’t thought of it already.

  3. I’m not looking forward to years and decades of worrying about if we’ve reached “peak data” yet.

    I was going to add my worry that the Greens would go on about how we have to wean our economy off its reliance on data because of all the damage it does, but they’ve already started that! And the new data gathering methods already get the same Luddite opposition as the new oil gathering methods, based almost entirely on fear.

    So maybe, to the far Left at least, data can replace oil as the big baddie. Facts and reality aren’t hugely important when you need a moral panic. “Big Data” would be a convenient target.

    (And they’ll keep using their phones and computers, just as they keep their cars and their plane trips.)